2006 June 22 Thursday
Minimum Wage Increase Fails In US Senate

The US Senate failed to pass an increase in the minimum wage which hasn't changed in 9 years as inflation has lowered real wages at the bottom..

The federal minimum wage has been $5.15 an hour since 1997. On a procedural measure Wednesday, senators voted 52 to 46 in favor of raising the wage to $7.25 in three steps, but 60 votes were needed to move the legislation forward.

By historical standards the inflation-adjusted minimum wage is very low.

The federal minimum wage is the lowest it has been in more than 50 years relative to the cost of living, according to a study by the liberal Economic Policy Institute. The average full-time minimum wage worker earns $10,712 a year, about $900 more than the federal poverty level for one person and $2,500 less than the poverty level for a couple.

In inflation-adjusted terms the minimum wage peaked in 1968 at $9.12 per hour in 2005 dollars. Check out the chart at that link. Note that once upon a time the minimum wage trended upward. Then it peaked and incomes for those at the bottom have been trending downward for decades in spite of big advances in labor productivity. A rising tide does not lift all boats.

Most low-paid workers are not teenagers.

But whether the fortunes of these 8 million Americans, earning less than $7.25 an hour, would rise or falter under the first government-ordered wage hike in 10 years is the broader debate spreading from restaurant kitchens on Capitol Hill to the grocery store aisles of Atlanta.

...

Some 48 percent, or 3.5 million, are between 25 and 64 years old who, on average, contribute more than half of the income in their households, experts say. Raising the minimum wage is a $18.4 billion proposition that is supported by 83 percent of Americans, according to the Pew Center for the People and the Press.

...

Of Americans making less than $7.25 an hour, half are over 24 years old, and about half are primary household earners. Sixty-two percent are white, 16 percent are black, and 17 percent are Hispanic. Nearly twice as many are women than men.

Check out these pie charts on who make the minimum wage. Only 30% of them are teenagers.

If the minimum wage increase was put to a popular referendum it would win by a landslide with huge Republican support.

An April survey by the Pew Research Center shows 83 percent of the public favors raising the minimum wage by $2. That figure includes 72 percent of Republicans, and 76 percent of people with household incomes of $75,000 or higher.

If we stopped the influx of low skilled Hispanics then salaries would rise at the bottom. Businesses would respond by investing more in labor-saving technologies and the rate of increase in productivity would rise.

Share |      By Randall Parker at 2006 June 22 07:48 PM  Economics Labor


Comments
Kenelm Digby said at June 23, 2006 4:55 AM:

What never fails to surprise me is the sheer stupidity (no other word is strong enough), of so-called "educated" people.
The fact that wages for unskilled work in America are so contemptibly low,(as compared to western Europe and Japan), is that employers have a surfeit of applicants willing to take the jobs at that rate.It really is as simple as that, businessmen always strive to minimize the bottom-line.
Of course the massive, uncontrolled, unlimited immigration advocated in the USA is the cause of the super-abundance and worthlessness of unskilled labor.
I seriously doubt that all these "clever" people who hold stings of degrees, MBAs, PhDs, who pontificate in the Economist and WSJ could run a hot-dog stand successfully if left to their own devices.

Ned said at June 23, 2006 5:38 AM:

The entire concept of the minimum wage can be defeated by asking the simple question, "What should the minimum wage be, and why?" If $5.15 isn't good enough, why not $7.50, or $75, or $750,000? The government has never been successful at creating wealth by fiat or in repealing the law of supply and demand. After citing truly pitiful index cases, the CSM article does point out that some economists consider the minimum wage counterproductive. That is, instead of giving these poor folks a few extra bucks, a minimum wage increase might render them unemployed (and unemployable). As always, the key to better wages is more education. Those who drop out of school can look forward to being stuck at the bottom for the rest of their lives. Unfortunate, perhaps, but the old days when even high school dropouts could get a high-wage unskilled union job at the auto factory or steel mill are gone forever. Of course, massive immigration is a great way to depress low-end wages and to make sure that those who are stuck there will remain stuck.

Half Sigma said at June 23, 2006 8:50 PM:

"why not $7.50, or $75, or $750,000?"

This is the classic straw man argument. No one is talking about raising the minimum wage to $750,000.

I find these arguments that "minimum wage hurts the workers" to be pretty bogus. If all the supliers of widgets, currently sold at $5 under free competition, decide they are going to form a cartel and only sell their widgets for $7, then what happens? If the elasticity of demand for widgets isn't too high, then all the members of the cartel MAKE MORE MONEY.

Minimum wage is like a cartel for low wage unskilled laborers. So to answer the question of whether or not minimum wage helps them, the answer is "duh! of course it does." It's basic macroeconomics--if you have complete control of a market then you can increase profits by raising prices.

Big Bill said at June 24, 2006 12:28 PM:

I have to laugh when liberals start talking about raising the minimum wage. These are the same people that say Mexicans are doing jobs "Americans won't do" --- like work for peon wages.

On the one hand they honor Mexicans for working like dogs and shame black Americans for being lazy. On the other hand they p*ss and moan about minimum wage being so low. You know. They say things like "How can I hate someone who comes to America for a better life." With that sort of globalist "we are the world" attitude, why not let employers hire illegals for four dollars an hour, or to dollars, or even one dollar and hour! My God! There are hundreds of millions -- maybe billions -- of illegals who would come here to work for a dollar an hour and live in what wee would consider squalor. They would crawl over broken glass for a dollar-an-hour job and a chance to live in a filthy dirt floor hut heated with dry cow turds and with an open sewer running just outside the door. And liberals just cannot get the b@lls together to kick those folks out right now. So why should I believe they have the b@lls either (1) to insist on minimum wage, or (2) enforce it when it is passed? When minimum wages go up, the borders will remain just as porous, the number of illegals will go up by an order of magnitude, the Mexicans we just legalized in the Bush immigration bill will start complaining that there are no jobs for them, and we will now be obligated under the new immigration act to take care of their sorry b*tts, as well as liberally obligated to take care of all the new illegals flooding in for the new minimum wages or for the jobs that are newly illegalized since businesses cannot raise hte minimum wge they currently have but refuse to go out of business.

With liberals fighting to legalize illegal Mexicans and their utter silence on the need for employers to check work status, just how do they think they are going to actually enforce minimum wage? They refuse to punish employers hiring illegals right down the street. Hell, THEY hire illegals to wipe their babies' butts and cut their grass. Given their refusal to do the slightest bit to help the working person, why should we believe they will actually enforce a higher minimum wage? Me, I see it as another way to drive decent businessmen either (1) out of business, or (2) into the underground economy as they are forced to hire illegals like all their friends at the Chamber of Commerce do.

For starters. Cut way back on legal immigration to drive up the value of the labor pool. Crack down on employers hiring illegals. Enforce criminal penalties against hiring illegals. Get the courts to recognize reality: if potential workers cannot speak English, read or write, it is EXTREMELY likely they are illegals. Right now the pity-meisters of the ACLU are skipping hand-in-hand with the greed-meisters of the Republican party on that one with both agreeing that enforcement of immigration laws is racially discriminatory. From now on, businesses may treat questionable folks like that without being accused of racism or other prejudice. I'd go even further. If they DON'T speak perfect accentless English, it shall be prima facie evidence that the employers did not exercise due care ifthey accept any documents as valid.

Once we have done all of that, I expect wages will start to rise naturally without the club, the market diddling, of a higher minimum wage. And if it doesn't, then and ONLY then will I be willing to discuss it.

I don't want to hear one freaking word about bigger welfare plans for anyone anywhere until the border is plugged and the illegals are gone. Any diddling with Great Society programs, higher minimum wage, socialized mediine or anything else while we have 3500 wetbacks coming over the border EACH DAY and almost as many "overstayers" is just p*ssing into the wind.

I don't mind taking care of my family's medical care, food, education, and clothing, but if The Law tears my front door off its hinges and defines my "family" as anyone who happens steps over the threshhold, and then tries to guilt trip me for "not taking care of my family", they can kiss my sweet @ss.

Randall Parker said at June 24, 2006 1:30 PM:

Big Bill,

A higher minimum wage will reduce illegal immigration.

Imagine the minimum wage was set at $12. That'd reduce the demand for low skilled labor and we have enough natives to supply all the labor desired at $12 per hour. So illegals would have a much harder time getting a job.

crush41 said at June 24, 2006 8:19 PM:

Half Sigma,

The people who get slammed by minimum wage increases are non-unioners currently working at wages a bit over the current floor ($7 or $8 an hour). They are not going to comparable pay increases. Consequently, their real buying power will diminish. The graphics Randall pointed to show that it is mostly women working part-time jobs who make minimum wage, not primary breadwinners. The CSM piece doesn't tell us enough:

Some 48 percent, or 3.5 million, are between 25 and 64 years old who, on average, contribute more than half of the income in their households, experts say.

The question is, how does this 48% break down by age? Presumably most of the 20-24 category and much of the 65+ and 16-19 are here. I'd like to see numbers and demographics on how many people make between $7-$9 an hour.

Randall,

Maybe. But a higher price of course makes the black market more lucrative. If the minimum wage was doubled and enforcement remained weak, the under-the-table wage could be raised by 50%, further incentivizing illegal immigration.


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